Feeds:
Posts
Comments

Posts Tagged ‘Liquidation’

Nyer Medical Group Inc (NASDAQ:NYER)

Posted in Nyer Medical Group Inc (NASDAQ:NYER), Stocks, tagged , on May 17, 2010| 2 Comments »

Nyer Medical Group Inc (OTC:NYER) has announced its sole and final liquidating distribution will be $2.08 per share.

We started following NYER in November last year (see the initial post) when the stock was trading at $1.75, and NYER had announced the liquidation subject to the approval of its shareholders and the closing of two transactions. The board estimated that shareholders would receive a liquidating distribution of between $1.84 to $2.00 per share, so the $2.08 per share exceeds the high end of the estimate, and a represents a total return of 19%. The S&P500 returned 8.9% over the same period, representing an outperformance of 10%.

Here is the release from NYER:

Nyer Medical Group, Inc., (NYER: News ) announced that on May 12, 2010, pursuant to its previously announced, shareholder-approved Plan of Dissolution, the Board of Directors of the company approved a sole and final liquidating distribution of $2.08 per common share to holders of the company’s common stock as of record date. As previously disclosed, the record date is May 3, 2010.

The Company expects to begin making this distribution on May 20, 2010 to all stockholders of record as of the close of business on May 3, 2010, including the Depository Trust Company, which is the entity that holds the Company’s common stock for stockholders who own shares through a broker. In order to receive their pro rata portion of the distribution, stockholders must present satisfactory evidence of their share ownership.

As previously disclosed, Nyer is in the process of the orderly wind down and dissolution of the Company pursuant to the Plan of Dissolution, which is described more fully in the Company’s Proxy Statement dated December 17, 2009, and is expected to be completed in approximately 30 days.

Hat tip Rogermunie.

[Full Disclosure:  I do not have a holding in NYER. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

Back-testing the performance of net current asset value against net net working value

Posted in About, Liquidation, Liquidation Value, Net Current Asset Value, Net Quick Stocks, Net Quick Value, Stocks, tagged , , , , , , , on February 18, 2010| 4 Comments »

Jae Jun at Old School Value has a great post, NCAV NNWC Screen Strategy Backtest, comparing the performance of net current asset value stocks (NCAV) and “net net working capital” (NNWC) stocks over the last three years. To arrive at NNWC, Jae Jun discounts the current asset value of stocks in line with Graham’s liquidation value discounts, but excludes the “Fixed and miscellaneous assets” included by Graham. Here’s Jae Jun’s NNWC formula:

NNWC = Cash + (0.75 x Accounts receivables) + (0.5 x  Inventory)

Here’s Graham’s suggested discounts (extracted from Chapter XLIII of Security Analysis: The Classic 1934 Edition “Significance of the Current Asset Value”):

Excluding the “Fixed and miscellaneous assets” from the NNWC calculation provides an austere valuation indeed (it makes Graham look like a pie-eyed optimist, which is saying something). The good news is that Jae Jun’s NNWC methodology seems to have performed exceptionally well over the period analyzed.

Jae Jun’s back-test methodology was to create two concentrated portfolios, one of 15 stocks and the other of 10 stocks. He rolled the positions on a four-weekly basis, which may be difficult to do in practice (as Aswath Damodaran pointed out yesterday, many a slip twixt cup and the lip renders a promising back-tested strategy useless in the real world). Here’s the performance of the 15 stock portfolio:

“NNWC Incr.” is “NNWC Increasing,” which Jae Jun describes as follows:

NNWC is positive and the latest NNWC has increased compared to the previous quarter. In this screen, NNWC doesn’t have to be less than current market price. Since the requirement is that NNWC is greater than 0, most large caps automatically fail to make the cut due to the large quantity of intangibles, goodwill and total debt.

Both the NNWC and NNWC Increasing portfolios delivered exceptional returns, up 228% and 183% respectively, while the S&P500 was off 26%. The performance of the NCAV portfolio was a surprise, eeking out just a 5% gain over the period, which is nothing to write home about, but still significantly better than the S&P500.

The 10 stock portfolio’s returns are simply astonishing:

Jae Jun writes:

An original $100 would have become

  • NCAV: $103
  • NNWC: $544
  • NNWC Incr: $503
  • S&P500: $74

That’s a gain of over 400% for NNWC stocks!

Amazing stuff. It would be interesting to see a full academic study on the performance of NNWC stocks, perhaps with holding periods in line with Oppenheimer’s Ben Graham’s Net Current Asset Values: A Performance Update for comparison. You can see Jae Jun’s Old School Value NNWC NCAV Screen here (it’s free). He’s also provided a list of the top 10 NNWC stocks and top 10 stocks with increasing NNWC in the NCAV NNWC Screen Strategy Backtest post.

Buy my book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market from on Kindle, paperback, and Audible.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on The Acquirer’s Multiple, or connect with me on Twitter, LinkedIn or Facebook. Check out the best deep value stocks in the largest 1000 names for free on the deep value stock screener at The Acquirer’s Multiple®.

 

Read Full Post »

Walking the talk: Applying back-tested investment strategies in practice

Posted in About, Behavioral economics, Contrarian investment, Liquidation Value, Net Current Asset Value, Net Quick Stocks, Quantitative investment, Stocks, Value Investment, tagged , , , , , , , , on February 17, 2010| 10 Comments »

Aswath Damodaran, a Professor of Finance at the Stern School of Business, has an interesting post on his blog Musings on Markets, Transaction costs and beating the market. Damodaran’s thesis is that transaction costs – broadly defined to include brokerage commissions, spread and the “price impact” of trading (which I believe is an important issue for some strategies) – foil in the real world investment strategies that beat the market in back-tests. He argues that transaction costs are also the reason why the “average active portfolio manager” underperforms the index by about 1% to 1.5%. I agree with Damodaran. The long-term, successful practical application of any investment strategy is difficult, and is made more so by all of the frictional costs that the investor encounters. That said, I see no reason why a systematic application of some value-based investment strategies should not outperform the market even after taking into account those transaction costs and taxes. That’s a bold statement, and requires in support the production of equally extraordinary evidence, which I do not possess. Regardless, here’s my take on Damodaran’s article.

First, Damodaran makes the point that even well-researched, back-tested, market-beating strategies underperform in practice:

Most of these beat-the-market approaches, and especially the well researched ones, are backed up by evidence from back testing, where the approach is tried on historical data and found to deliver “excess returns”. Ergo, a money making strategy is born.. books are written.. mutual funds are created.

…

The average active portfolio manager, who I assume is the primary user of these can’t-miss strategies does not beat the market and delivers about 1-1.5% less than the index. That number has remained surprisingly stable over the last four decades and has persisted through bull and bear markets. Worse, this under performance cannot be attributed to “bad” portfolio mangers who drag the average down, since there is very little consistency in performance. Winners this year are just as likely to be losers next year…

Then he explains why he believes market-beating strategies that work on paper fail in the real world. The answer? Transaction costs:

So, why do portfolios that perform so well in back testing not deliver results in real time? The biggest culprit, in my view, is transactions costs, defined to include not only the commission and brokerage costs but two more significant costs – the spread between the bid price and the ask price and the price impact you have when you trade. The strategies that seem to do best on paper also expose you the most to these costs. Consider one simple example: Stocks that have lost the most of the previous year seem to generate much better returns over the following five years than stocks have done the best. This “loser” stock strategy was first listed in the academic literature in the mid-1980s and greeted as vindication by contrarians. Later analysis showed, though, that almost all of the excess returns from this strategy come from stocks that have dropped to below a dollar (the biggest losing stocks are often susceptible to this problem). The bid-ask spread on these stocks, as a percentage of the stock price, is huge (20-25%) and the illiquidity can also cause large price changes on trading – you push the price up as you buy and the price down as you sell. Removing these stocks from your portfolio eliminated almost all of the excess returns.

In support of his thesis, Damodaran gives the example of Value Line and its mutual funds:

In perhaps the most telling example of slips between the cup and lip, Value Line, the data and investment services firm, got great press when Fischer Black, noted academic and believer in efficient markets, did a study where he indicated that buying stocks ranked 1 in the Value Line timeliness indicator would beat the market. Value Line, believing its own hype, decided to start mutual funds that would invest in its best ranking stocks. During the years that the funds have been in existence, the actual funds have underperformed the Value Line hypothetical fund (which is what it uses for its graphs) significantly.

Damodaran’s argument is particularly interesting to me in the context of my recent series of posts on quantitative value investing. For those new to the site, my argument is that a systematic application of the deep value methodologies like Benjamin Graham’s liquidation strategy (for example, as applied in Oppenheimer’s Ben Graham’s Net Current Asset Values: A Performance Update) or a low price-to-book strategy (as described in Lakonishok, Shleifer, and Vishny’s Contrarian Investment, Extrapolation and Risk) can lead to exceptional long-term investment returns in a fund.

When Damodaran refers to “the price impact you have when you trade” he highlights a very important reason why a strategy in practice will underperform its theoretical results. As I noted in my conclusion to Intuition and the quantitative value investor:

The challenge is making the sample mean (the portfolio return) match the population mean (the screen). As we will see, the real world application of the quantitative approach is not as straight-forward as we might initially expect because the act of buying (selling) interferes with the model.

A strategy in practice will underperform its theoretical results for two reasons:

  1. The strategy in back test doesn’t have to deal with what I call the “friction” it encounters in the real world. I define “friction” as brokerage, spread and tax, all of which take a mighty bite out of performance. These are two of Damodaran’s transaction costs and another – tax. Arguably spread is the most difficult to prospectively factor into a model. One can account for brokerage and tax in the model, but spread is always going to be unknowable before the event.
  2. The act of buying or selling interferes with the market (I think it’s a Schrodinger’s cat-like paradox, but then I don’t understand quantum superpositions). This is best illustrated at the micro end of the market. Those of us who traffic in the Graham sub-liquidation value boat trash learn to live with wide spreads and a lack of liquidity. We use limit orders and sit on the bid (ask) until we get filled. No-one is buying (selling) “at the market,” because, for the most part, there ain’t no market until we get on the bid (ask). When we do manage to consummate a transaction, we’re affecting the price. We’re doing our little part to return it to its underlying value, such is the wonderful phenomenon of value investing mean reversion in action. The back-test / paper-traded strategy doesn’t have to account for the effect its own buying or selling has on the market, and so should perform better in theory than it does in practice.

If ever the real-world application of an investment strategy should underperform its theoretical results, Graham liquidation value is where I would expect it to happen. The wide spreads and lack of liquidity mean that even a small, individual investor will likely underperform the back-test results. Note, however, that it does not necessarily follow that the Graham liquidation value strategy will underperform the market, just the model. I continue to believe that a systematic application of Graham’s strategy will beat the market in practice.

I have one small quibble with Damodaran’s otherwise well-argued piece. He writes:

The average active portfolio manager, who I assume is the primary user of these can’t-miss strategies does not beat the market and delivers about 1-1.5% less than the index.

There’s a little rhetorical sleight of hand in this statement (which I’m guilty of on occasion in my haste to get a post finished). Evidence that the “average active portfolio manager” does not beat the market is not evidence that these strategies don’t beat the market in practice. I’d argue that the “average active portfolio manager” is not using these strategies. I don’t really know what they’re doing, but I’d guess the institutional imperative calls for them to hug the index and over- or under-weight particular industries, sectors or companies on the basis of a story (“Green is the new black,” “China will consume us back to the boom,” “house prices never go down,” “the new dot com economy will destroy the old bricks-and-mortar economy” etc). Yes, most portfolio managers underperform the index in the order of 1% to 1.5%, but I think they do so because they are, in essence, buying the index and extracting from the index’s performance their own fees and other transaction costs. They are not using the various strategies identified in the academic or popular literature. That small point aside, I think the remainder of the article is excellent.

In conclusion, I agree with Damodaran’s thesis that transaction costs in the form of brokerage commissions, spread and the “price impact” of trading make many apparently successful back-tested strategies unusable in the real world. I believe that the results of any strategy’s application in practice will underperform its theoretical results because of friction and the paradox of Schrodinger’s cat’s brokerage account. That said, I still see no reason why a systematic application of Graham’s liquidation value strategy or LSV’s low price-to-book value strategy can’t outperform the market even after taking into account these frictional costs and, in particular, wide spreads.

Hat tip to the Ox.

Read Full Post »

Convera Corporation (NASDAQ:CNVR) and the Case of the Disappearing Distribution

Posted in Convera Corporation (NASDAQ:CNVR), Stocks, tagged , on December 21, 2009| 5 Comments »

In mid November I ran a post on Convera Corporation (NASDAQ:CNVR) (see the CNVR post archive here), which was in the process of liquidating and planning to pay distributions valued in the range of $0.26 to $0.45 per share. The stock was then trading at $0.221. The distributions consisted of three cash payments with a value of $0.26 per share ($10M on liquidation, and a $2M payment on each of the 6 and 12 month anniversaries of liquidation) and a share in a newly created company, VSW, worth between nothing and $0.14 on pretty heroic assumptions. The most recent 10Q is a little troubling because it doesn’t mention the two $2M distributions, which account for about $0.07 of value in the liquidation. They are still included in the original plan of liquidation and therefore by reference in latest 10Q. We have not, however, been able to contact the CFO to confirm that the distributions are still payable. I believe that some distribution is still payable, but not in the quantum originally estimated by the company. My rough estimate, based on the accounts as at October 31, places the total cash distributions slightly lower than the company’s last estimate at ~$13.0M or $0.24 per share.

The original information statement

Here’s the description from the 14(c) information statement:

We plan to distribute $10,000,000 shortly after the closing of the Merger, with the remaining $4,000,000 to be distributed in $2,000,000 increments at six months and 12 months after the closing of the Merger, subject to possible holdbacks for potential liabilities and on-going expenses deemed necessary by our board of directors in its sole discretion.

The present value of this cash distribution, assuming a discount rate of 10%, is estimated at $0.26 per share.

CNVR 1

Hempstead assessed the value indication associated with a one-third equity interest in VSW based upon the discounted cash flows methodology. Specifically, under a discounted cash flows methodology, the value of a company’s stock is determined by discounting to present value the expected returns that accrue to holders of such equity. Projected cash flows for VSW were based upon projected financial data prepared by our management. Estimated cash flows to equity holders were discounted to present value based upon a range of discount rates, from 25% to 35%. This range of discount rates is reflective of the required rates of return on later-stage venture capital investments. The resultant value indications for the VSW component of the transaction, on a per-Convera share basis, are as follows:

CNVR 2

Based upon the above analyses, the value indications for the cash and VSW stock to be received by our stockholders in exchange for their current Convera shares are within a range of $0.37 to $0.45 per Convera share.

The most recent 10Q

This is the position according to the most recent 10Q:

On June 1, 2009, we announced our plans to merge our search business with Vertical Search Works, Inc. and our expectation to adopt a plan of dissolution with orderly wind down and liquidation of Convera before the closing of the merger. The merger with VSW contemplates the transfer of all the business assets and obligations of the search business, including $3.0 million in cash and a $1.0 million line of credit to VSW, subject to certain adjustments. The plan of dissolution contemplates a $10.0 million dividend to shareholders of record at the close of the transaction and an orderly wind up of Convera’s remaining obligations over the twelve months after closing. We believe that we have sufficient cash resources on hand to complete the merger and the plan of dissolution. We expect the conditions for the closing of the VSW transaction will be met early in 2010. However, we make no assurances that either the merger or the plan of dissolution will be completed.

Here’s my rough estimate of the state of the balance sheet here after a further 12 months of cash burn and professional fees:

According to my back-of-the-envelope calculations, the distributions estimated by management seem slightly high, but my estimate is sensitive to the quantum of the cash burn and professional fees. At the present stock price, there’s no upside in the cash distributions. The share in VSW may present some value, but no sensible estimate can be made as to that value. The range is likely nil to $0.14 per share, and I believe nil is the more likely end of the range. I’m going to maintain Greenbackd’s position in CNVR because I think the worst case scenario – which is probably the most likely scenario – is that the position is a wash, but there is some small chance that there is value in VSW.

Hat tip Rodrigo.

[Full Disclosure:  I do not hold CNVR. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

Soapstone Networks Inc (OTC:SOAP) Q3 2009 10Q update

Posted in Activist Investors, Mithras Capital, Soapstone Networks Inc (NASDAQ:SOAP), Stocks, tagged , , on November 19, 2009| Leave a Comment »

Soapstone Networks Inc (NASDAQ:SOAP) has released its 10Q for the period ended September 30, 2009.

We first looked at SOAP on February 2nd (see Greenbackd’s post archive here) because it was trading well below its net cash value. An activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging on Mithras Capital’s part, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company on July 28 and received a special dividend of $3.75 per share the next day. Based on our $2.50 purchase price, the $3.75 per share special dividend returned our initial capital plus 50%. At yesterday’s close, the $0.65 stub represents a total return to date of 76%. Management originally estimated the final distribution to be between $0.25 and $0.75 per share, which means the stub is presently trading at a 30% premium to the $0.50 midpoint of the distribution range.

On September 9, in our guest blogger series, Wes Gray and Andy Kern took a look at the SOAP stub as a stand alone investment. Gray and Kern argued that there was plenty of value left in the stub:

e. Total Return Possible

Low Estimate: .39 first distribution (Q2 2010), .06 second distribution (Q4 2010)

=>-4.57%

Expectation: .70 first distribution (Q1 2010), .06 second distribution (Q4 2010)

=>59.01%

High Estimate: .82 first distribution (Q4 2009), .15 second distribution (Q4 2010)

=>102.98%

Expected Return:

P(Low)=.25

P(Estimate)=.50

P(High)=.25

ð .25*-.0457+.50*.5901+.25*1.0298=54.11% expected return by Q4 2010.

At its $0.65 close yesterday, the stub is up 20.4% since that post.

The sale of the company’s non-cash assets including its “principal intellectual property assets,” the value of which we were speculating about on August 11, yielded cash consideration of approximately $2.2M. SOAP does not expect to receive any additional material consideration for the few remaining non-cash assets left in its possession.

The value proposition updated

According to the most recent 10Q, which was prepared on a liquidation basis, SOAP has around $11.4M in net assets. This includes total liabilities of around $5.6, of which $5.5M is a reserve for liquidation costs. Here is an extract from the 10Q:

With 15.2M shares on issue, and assuming SOAP spends the full $5.5M reserve for liquidation costs, SOAP looks likely to yield $0.75 per share, the upper end of management’s estimated range and a 15% return from here. If there are any savings in the $5.5M reserve, SOAP could pay out substantially more.

Conclusion

Given that the stock is trading at a 15% discount to what now appears to be the low end of the likely final distribution, I’m going to maintain Greenbackd’s position in SOAP.

[Full Disclosure: I do not have holding in SOAP. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

Convera Corporation (NASDAQ:CNVR)

Posted in Convera Corporation (NASDAQ:CNVR), Liquidation, Stocks, tagged , , on November 11, 2009| 7 Comments »

Convera Corporation (NASDAQ:CNVR) is a liquidation play. The stock closed yesterday at $0.221. The company estimates the value of the distributions to be in the range of $0.37 to $0.45 per share.

Approvals

According to the 14(c) information statement:

The board approved the plan of dissolution on May 29, 2009. The liquidation will not be put to a shareholder vote as “the affirmative vote of holders of a majority of all outstanding shares of our Class A Common Stock is required. In order to approve the election of directors, the affirmative vote of a plurality of all outstanding shares of our Class A Common Stock is required. As of the close of business on September 22, 2009, the Record Date for the approval of the above matters, there were 53,501,183 shares of our Class A Common Stock issued and outstanding, which shares are entitled to one vote per share. Holders of our Class A Common Stock which represented a majority of the voting power of our outstanding capital stock as of the Record Date, have executed a written consent in favor of the actions described above and have delivered it to us on September 22, 2009, the Consent Date. Therefore, no other consents will be solicited in connection with this Information Statement.”

Distributions

From the information statement:

We plan to distribute $10,000,000 shortly after the closing of the Merger, with the remaining $4,000,000 to be distributed in $2,000,000 increments at six months and 12 months after the closing of the Merger, subject to possible holdbacks for potential liabilities and on-going expenses deemed necessary by our board of directors in its sole discretion.

The present value of this cash distribution, assuming a discount rate of 10%, is estimated at $0.26 per share.

CNVR 1

Hempstead assessed the value indication associated with a one-third equity interest in VSW based upon the discounted cash flows methodology. Specifically, under a discounted cash flows methodology, the value of a company’s stock is determined by discounting to present value the expected returns that accrue to holders of such equity. Projected cash flows for VSW were based upon projected financial data prepared by our management. Estimated cash flows to equity holders were discounted to present value based upon a range of discount rates, from 25% to 35%. This range of discount rates is reflective of the required rates of return on later-stage venture capital investments. The resultant value indications for the VSW component of the transaction, on a per-Convera share basis, are as follows:

CNVR 2

Based upon the above analyses, the value indications for the cash and VSW stock to be received by our stockholders in exchange for their current Convera shares are within a range of $0.37 to $0.45 per Convera share.

Conclusion

The trading price of the VSW stock is an unknown, but the $0.26 in cash distributions offer some protection at yesterday’s close of $0.221. Buying up to say $0.23 means getting paid $0.03 to hold a free option on the VSW stock, which, according to Hempstead, the financial consultant providing the fairness opinion, could be worth between $0.11 and $0.19 per share. It’s very thinly traded at this price, so good luck getting set, but it’s worth buying if you can get a reasonable line of stock. I’m going to add it to the Greenbackd Portfolio at yesterday’s close.

CNVR closed yesterday at $0.221.

The S&P500 closed yesterday at 1,093.01.

Hat tip to Sean.

[Full Disclosure:  We do not have a holding in CNVR. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

ASPN announces distribution of cash proceeds from Venoco sale

Posted in Activist Investors, Aspen Exploration Corporation (OTC:ASPN), Greenbackd Portfolio, Liquidation Value, Stocks, Tymothi O. Tombar, tagged , , , on November 5, 2009| 15 Comments »

Aspen Exploration Corporation (OTC:ASPN) has announced that it will pay a cash dividend of $0.73 per share to stockholders of record on November 16, 2009 from the proceeds of the sale of its California oil and gas assets to Venoco, Inc. $0.73 per share represents $5.3M, which is just over the mid-point of the $5.0M to $5.5M range estimated by the company.

We’ve been following ASPN (see our ASPN post archive) because it’s trading at a discount to its $1.17 per share liquidation value and there are several potential catalysts in the stock, including a 13D filing from Tymothi O. Tombar, a plan to distribute substantially all of the net, after-tax proceeds from the completion of the Venoco sale to its stockholders ($5.3M), and the possibility that the company will dissolve. The stock is down 0.2% since we initiated the position to close yesterday at $0.983. This values the remaining stub of ASPN at $0.253 ($0.983 less $0.73) against a liquidating value I estimate at $0.44 ($1.17 less $0.73). I still think there’s obvious value here, and there might be another interesting play in the stub after the dividend. This is worth watching. It’s should also be noted, as reader bellamyj has pointed out, that, regardless of outcome of the upcoming shareholder vote, ASPN may not liquidate. This is not necessarily a bad thing if the controlling shareholder plans on monetizing the shell and its remaining cash. He owns 20% of the stock, so he’s got some incentive to do so, and he’s paying out a big cash dividend, which is a shareholder-friendly act. That said, it’s not clear whether that dividend was as a result of Timothy O. Tombar’s agitation or a spontaneous effort on behalf of the board. I’ve been wrong about managers before, but hope springs eternal.

Here’s the 8K filing:

On November 2, 2009 Aspen Exploration Corporation (“Aspen”) declared a cash dividend of $0.73 per share. The dividend will be paid to stockholders of record on November 16, 2009, with the dividend being paid on or about December 2, 2009. A copy of the news release describing the dividend is attached hereto as Exhibit 99.1. The distribution follows the final settlement of the sale of Aspen’s California oil and gas assets to Venoco, Inc., at which the parties made a number of immaterial adjustments to the purchase price paid at the June 30, 2009 closing, and made certain other payments that were not determined until after the closing. At the final settlement date Aspen received a net payment from Venoco, but was required to make various payments to third parties which ultimately resulted in a cash outflow from Aspen in an amount not considered to be material.

Aspen expects that after the payment of the dividend, and its anticipated operations through the end of the current calendar year, on December 31, 2009 it will have more than $3 million of working capital remaining. Aspen currently intends to utilize its remaining funds to maintain its corporate status as a reporting issuer under the Securities Exchange Act of 1934 and to explore other business opportunities. Pending developments with respect to any business opportunities Aspen identifies, Aspen may later reevaluate its status and plans and consider alternatives to wind up its affairs. Aspen’s projections and future plans described in this report are “forward-looking statements” (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended) which are dependent upon a number of factors. There can be no assurance that Aspen’s projections will prove to be accurate or that Aspen will be able to successfully execute or implement its operations as described herein.

Hat tip Joe G.

[Full Disclosure:  I do not have a holding in ASPN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

Nyer Medical Group Inc (NASDAQ:NYER)

Posted in Liquidation Value, Nyer Medical Group Inc (NASDAQ:NYER), Stocks, tagged , on November 3, 2009| 5 Comments »

Nyer Medical Group Inc (NASDAQ:NYER) is to liquidate subject to the approval of its shareholders and the closing of two transactions. The board estimates that shareholders will receive a liquidating distribution of between $1.84 to $2.00 per share. At its $1.75 close yesterday, the low end of the range represents a 5% return and the high end represents a 15% return. This is the filing disclosing summaries of the two transaction agreements (the underlining is mine):

Asset Purchase Agreement

On October 22, 2009, D.A.W., Inc. (“DAW”), a wholly-owned subsidiary of Nyer Medical Group, Inc. (“Nyer”), and Nyer entered into an Asset Purchase Agreement (the “WAG Agreement”) with Walgreen Eastern Co., Inc., a New York corporation (“WAG”), for the sale of a substantial portion of DAW’s operating assets, including prescription files and inventory of a total of 12 neighborhood pharmacies which includes the assignment of eight leases (the “Acquired Assets”), for a purchase price, subject to certain adjustments, of $12.0 million plus up to $5.75 million of qualifying inventory and $1.1 million of operating equipment (the “WAG Transaction”).

DAW, Nyer and WAG made customary representations, warranties and covenants in the WAG Agreement. In addition, DAW and Nyer agreed that, for a period of three years, they would refrain (and cause their current controlled affiliates to refrain) from competing within a certain area of the pharmacies whose assets were included in the Acquired Assets, with certain exceptions set forth in the WAG Agreement.

The parties have agreed to indemnify each other against certain losses, including losses for breaches of representations, warranties and covenants. Each of DAW’s and Nyer’s indemnification obligations begin at an aggregate of $50,000 and are limited to a total of $1,200,000 or, with respect to the inaccuracy of certain fundamental representations, $4,000,000. Further, DAW’s and Nyer’s indemnification obligations terminate 90 days following the closing date, with certain exceptions, including an extension of the indemnification period for up to 12 months for claims related to certain representations and 3 years for claims related to noncompetition covenants. WAG agrees to indemnify DAW and Nyer for its breach of the WAG Agreement for a period of 12 months, except in certain circumstances set forth in the WAG Agreement, and its indemnification obligations are for an unlimited amount.

DAW, Nyer and WAG can terminate the WAG Agreement in certain specified instances, as provided in the WAG Agreement. If the closing does not occur and Nyer or DAW enters into an alternative transaction under certain conditions specified in the WAG Agreement, DAW would owe to WAG a breakup fee in the amount of $300,000 and reimbursement of actual out-of-pocket expenses in an amount up to $200,000.

The completion of the WAG Transaction is subject to certain closing conditions set forth in the WAG Agreement, including the approval of the WAG Transaction at a special meeting of Nyer’s shareholders which is expected to be held on or about December 15, 2009 (the “Special Meeting”).

Nyer’s Board of Directors engaged Newbury Piret Companies, Inc. (“Newbury Piret”) as financial advisor to evaluate the WAG Transaction. The Board of Directors of Nyer and DAW (the “Boards”) unanimously approved the WAG Transaction. In approving the WAG Transaction, the Boards considered the depressed market price of the stock, the historically low trading volume and volatility of bid prices; market pressures on margins and operating costs that would have an adverse effect on the operating results of the pharmacies, a fairness opinion from Newbury Piret and other considerations.

The foregoing description of the WAG Agreement is qualified in its entirety by reference to the full text of the WAG Agreement, a copy of which is attached hereto as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein.

Stock Purchase Agreement

On October 23, 2009, Nyer and DAW entered into a Transaction Agreement (the “DAW Stock Agreement”) with certain management investors named therein (the “Investors”) for the sale of the stock of DAW, under which Nyer will receive a benefit of $1,500,000 after giving effect to liabilities to be retained by DAW (the “DAW Stock Transaction”).

DAW and Nyer made customary representations, warranties and covenants in the DAW Stock Agreement. In addition, DAW and Nyer agreed, on the terms set forth in the DAW Stock Agreement, not to solicit or encourage any alternative sale transactions.

DAW, Nyer and the Investors can terminate the DAW Stock Agreement in certain specified instances, as provided in the DAW Stock Agreement. If the closing does not occur and Nyer and DAW enter into an alternative transaction under certain conditions specified in the DAW Stock Agreement, DAW and Nyer would owe to the Investors a breakup fee in the amount equal to the actual out-of-pocket expenses, including attorneys’ fees, incurred by the Investors in connection with the DAW Stock Transaction.

The completion of the DAW Stock Transaction is subject to certain closing conditions set forth in the DAW Stock Agreement, including the approval of the DAW Stock Transaction at the Special Meeting and the approval and closing of the WAG Transaction.

The DAW Stock Transaction was reviewed by a special committee of the Board of Directors of Nyer comprised of independent directors (the “Special Committee”). The Special Committee engaged Newbury Piret to evaluate the DAW Stock Transaction. The DAW Stock Transaction was unanimously approved by the Special Committee and recommended to the Boards by the Special Committee. The Boards also unanimously approved the DAW Stock Transaction. In approving the DAW Stock Transaction, the Special Committee and the Boards considered the fact that substantially all of the assets of DAW would be sold to WAG under the WAG Agreement, the lack of interest by WAG in the assets subject to the DAW Stock Agreement, a fairness opinion from Newbury Piret and other considerations.

The foregoing description of the DAW Stock Agreement is qualified in its entirety by reference to the full text of the DAW Stock Agreement, a copy of which is attached hereto as Exhibit 2.2 to this Current Report on Form 8-K and incorporated herein.

The WAG Agreement and DAW Stock Agreement (the “Agreements”) have been included to provide investors with information regarding their terms. It is not intended to provide any other factual information about Nyer or DAW. The representations, warranties and covenants contained in the Agreements were made only for purposes of such agreements and as of the specific dates therein, were solely for the benefit of the parties to such agreements, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Agreements. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the agreements instead of establishing those matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third party beneficiaries under the Agreements and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Nyer, DAW or any other party to the Agreements. Moreover, information concerning the subject matter of the representations and warranties may change after the dates of the Agreements, which subsequent information may or may not be fully reflected in Nyer’s public disclosures.

Here is the announcement of the board approval of the liquidation:

As previously disclosed on October 23, 2009, in conjunction with the sale of a substantial portion of the assets of D.A.W., Inc. (“DAW”), a wholly owned subsidiary of Nyer Medical Group, Inc. (“Nyer”), to Walgreen Easter Co. (the “WAG Transaction) and the sale of the stock of DAW to certain management investors (the “DAW Stock Transaction”), the Board of Directors of Nyer approved the liquidation and dissolution of Nyer pursuant to a Plan of Dissolution (the “Plan of Dissolution”), subject to obtaining shareholder approval of the WAG Transaction, the DAW Stock Transaction, and the Plan of Dissolution (the “Transactions”). Upon shareholder approval and the closing of the WAG Transaction and the DAW Stock Transaction, Nyer intends to proceed with the orderly wind down and dissolution of Nyer pursuant to the Plan of Dissolution. Nyer currently expects that upon dissolution of Nyer, shareholders of Nyer will receive a liquidating distribution in the range of $1.84 to $2.00 a share, depending on the ultimate amount of assets and liabilities to be realized upon liquidation.

Management tend to underestimate liquidation distributions (for obvious reasons), so this is probably worth playing. With a market capitalization of just $7M, it’s a small company, but that’s nothing new around here. I’m adding it to the Greenbackd Portfolio at $1.75.

The S&P500 closed yesterday at $1042.88

Hat tip William Wang.

[Full Disclosure:  We have a holding in NYER. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Read Full Post »

Special situation: Short Genaera Corporation (NASDAQ:GENR)

Posted in Genaera Corporation (NASDAQ:GENR), Short, Special Situation, tagged , , , on April 30, 2009| 2 Comments »

Genaera Corporation (NASDAQ:GENR) is a first for us: a short play. The company has announced that the board of directors has approved a Plan of Liquidation and Dissolution forecasting distributions of between $0.002 and $0.0173 per share contingent on a sale of its assets. We believe the most likely outcome to be a distribution of nil. The stock is currently at $0.18. The risk to the short position is a sale of the company’s intellectual property, which we think is unlikely for the reasons we describe below.

About GENR

GENR is a biopharmaceutical company focused on advancing the science and treatment of metabolic diseases. It has announced a plan to liquidate:

Genaera Corporation Announces Approval of Plan of Liquidation and Dissolution by Board of Directors

Plymouth Meeting, PA – April 28, 2009 – Genaera Corporation (the “Company”)(NASDAQ: GENR) today announced that its Board of Directors has determined, after extensive and careful consideration of the Company’s strategic alternatives, that it is in the best interests of the Company and its stockholders to liquidate the Company’s assets and to dissolve the Company. The Company’s Board of Directors has approved a Plan of Complete Liquidation and Dissolution of the Company (the “Plan of Dissolution”), subject to stockholder approval. The Company intends to hold a special meeting of stockholders to seek approval of the Plan of Dissolution and has filed preliminary proxy materials with the Securities and Exchange Commission (“SEC”) and will file definitive proxy materials in the near future.

The Plan of Dissolution contemplates an orderly wind down of the Company’s business and operations. If the Company’s stockholders approve the Plan of Dissolution, the Company intends to file articles of dissolution, satisfy or resolve its remaining liabilities and obligations, including but not limited to contingent liabilities and claims, lease obligations, severance for terminated employees and costs associated with the liquidation and dissolution, and attempt to convert all of its remaining assets into cash or cash equivalents. Based on current projections of operating expenses and liquidation costs the Company currently estimates that it will not make liquidating distributions to stockholders unless and until a sale of one or all of its assets has been consummated. Following stockholder approval of the Plan of Dissolution and the filing of articles of dissolution, the Company would delist its common stock from NASDAQ.

If, prior to its dissolution, the Company receives an offer for a corporate transaction that will, in the view of the Board of Directors, provide superior value to stockholders than the value of the estimated distributions under the Plan of Dissolution, taking into account all factors that could affect valuation, including timing and certainty of closing, credit market risks, proposed terms and other factors, the Plan of Dissolution could be abandoned in favor of such a transaction.

The value proposition

GENR has funded its operations primarily from the proceeds of public and private placements of its securities and through contract and grant revenues, research and development expense reimbursements, the sale of a Pennsylvania research and development tax credit carry forwards and interest income. It has not nor will it ever have products available for sale and has incurred losses since inception.

The notice of special meeting filed yesterday anticipates a maximum distribution of $0.0173 per share and the company does not expect to make a distribution “unless and until a sale of one or all of our assets has been consummated.” The balance sheet as at March 31, 2009 shows $5.3M in cash and equivalents less $2M in liabilities, which equates to a net cash value of $3.3M or $0.19 per share before we deduct the following:

  • ongoing operating expenses;
  • expenses incurred in connection with extending directors’and officers’ insurance coverage;
  • expenses incurred in connection with the liquidation and dissolution process;
  • severance and related costs; and
  • professional, legal, consulting and accounting fees.

Assuming between $3M and $4M for the foregoing, GENR has between $0.02 per share and nil net cash value in liquidation, with nil being more likely.

The company’s own estimates are as follows:

Based on our current projections of operating expenses and liquidation costs, we currently estimate that distributions to stockholders would only occur in the event of a consummation of the sale of one or more of our assets:

genr-summary

(1) Estimated salaries and related benefits for employees through May 31, 2009.
(2) Represents final research and development expenses related to the wind down of our trodusquemine program, including clinical trial costs, third-party contract research costs and manufacturing expenses.
(3) Other operating expenses consists of facilities expenses, legal, accounting and intellectual property expenses, consulting and other fees and insurance costs including the payment of $255,000 for directors and officers liability insurance covering six years from the date of stockholder approval of the Plan of Dissolution.
(4) Estimated cash use for severance payments to employees remaining after March 31, 2009, including Executive Officers. Amounts included in the table for Executive Officers do not include amounts due under the Executive Officers and Dr. Wolfe’s change of control agreements. See “Interests of Certain Directors and Executive Officers in Approval of the Plan of Dissolution – Summary of Benefits of Certain Executive Officers” for additional information related to severance payments to the Executive Officers. The severance costs shown in the table include $1,012,000 to be paid to the Executive Officers, $516,000 to be paid to other employees, $95,000 of associated payroll taxes and $42,000 for ongoing health benefits under employee severance agreements for all employees.

The risk to this analysis is the company actually manages to sell its intellectual property assets, and we’re going to explore GENR’s efforts to sell those assets in some detail below.

Likelihood of asset sales

According to the proxy statement for the special meeting, GENR has made extensive efforts to sell or license its intellectual property without success since 2008. Throughout 2008 management contacted over 90 prospective strategic partners, both domestic and international. This resulted in approximately 25 companies signing non-disclosure agreements and receiving non-public evaluation materials. Subsequently, two parties submitted expressions of interest in the purchase of two separate assets.

GENR and its legal advisors have been engaged in discussions with one prospective purchaser in an attempt to reach an agreement regarding the acquisition price and the other terms of a definitive agreement. According to GENR, the parties are generally in agreement on the proposed terms of a definitive agreement and continue to communicate, but have been unable to complete the transaction. With regard to the second potential purchaser, GENR is currently engaged in discussions in an attempt to reach an agreement regarding the acquisition price of the other asset.

In 2009, as a result of limited interest in GENR’s other assets and the unanticipated delay in the consummation of the transaction, GENR engaged of outside parties to assist in licensing and/or partnering its trodusquemine program. The scope of the oustide engagement included searching for a purchaser, licensee or partner acceptable to GENR and assisting it in negotiating the financial aspects of a transaction.

Between January and March 2009, the oustide parties contacted 43 potential purchasers and/or partners, which resulted in 23 rejections, 9 pending reviews and the execution of 11 non-disclosure agreements to review non-public evaluation materials. The review of confidential information resulted in six rejections and meaningful discussions with three potential licensors and/or purchasers.

At the April 8, 2009 meeting of the board, the board reviewed the prospects for partnering and/or licensing the trodusquemine program, the status of the sales of two of its assets, as well as alternative means to fund the company. As neither of the asset sales had been consummated or were projected to be consummated imminently, the board instructed management to prepare a plan of dissolution in conjunction with the outside counsel for review and consideration at the next board meeting.

Conclusion

GENR is a short play because the current stock price is almost ten times the company’s projected distribution in the liquidation of the company. The stock is currently at $0.18. The company forecasts distributions of between $0.002 and $0.0173 per share contingent on a sale of its assets. We believe there is a very real possibility the distribution could be nil.  The risk to the short position is a sale of the company’s intellectual property, which we think is unlikely.

Hat tip Anon.

Read Full Post »